The loss of a series of key patents for cholesterol fighters
and other widely used medicines cost big-name drug companies about $82 billion
in sales between 2011 and 2013, according to life-sciences data company
Evaluate, forcing large-scale job cuts and a wave of deals to make up for lost
revenue.

Once again, the pharmaceutical industry is peering over the
ledge. Over the next three years, roughly $60 billion of drug sales for
companies including Roche Holding AG, Sanofi, and Eli Lilly & Co. are
threatened by potential rivals, according to a report from the investment firm
Sanford C. Bernstein. Among the drugs expected to lose their
protections are pricey biotechnology treatments for cancer and other diseases.

The industry has pushed hard to forestall generic competition
for the complex drugs, which are typically grown from cells rather than
manufactured chemically. As Congress debated a new approval process for
so-called biosimilars amid the legislating of Obamacare, the industry boosted
its lobbying by almost 50 percent, spending $274 million in 2009, according to
the Centre for Responsive Politics.

By the time lawmakers passed a path to market for
biosimilars as part of the Affordable Care Act in 2010, the industry had
assured that competition would come much more slowly, making the resulting
sales decline look less like a precipice and more like a gentle hill.

High Stakes

Swiss drug maker Roche may have the most at stake. It’s
facing the loss of exclusivity for its three top-selling cancer drugs over the
next two years, which account for more than $20 billion of its $51.4 billion in
annual sales.

Roche’s leukemia therapy Rituxan, which sold 7.3 billion
Swiss francs ($7.24 billion), last year, loses patent protection this year,
according to Bernstein. Out of 31 analysts who follow Roche’s stock, 21 rate it
a “buy,” according to data compiled by Bloomberg.

Roche campaigned mightily for tougher approval for
biosimilars. The company spent $17.7 million in US congressional lobbying in
2007 and 2008, compared to $3.7 million in 2000, according to the Center for
Responsive Politics.

The surge was aimed largely at laws that would have created
an easier path for biosimilars. Versions of those laws ultimately passed in the
Obamacare law, but drugmaker lobbying helped ensured stiff barriers to entry
and a longer period in which biosimilar makers couldn’t cite earlier data when
seeking approval.

“Roche is the strongest, biggest player which deliberately
stayed out of biosimilars and is going out of its way to portray biosimilars as
different and unsafe,” said Ian Tzeng, a partner at L.E.K. Consulting, a firm
that consults with businesses about strategy and M&A.

Roche said in an emailed statement that it has supported “a
rigorous and science-based pathway for the approval of biosimilars,” and that
its lobbying has focused on ensuring that biosimilars are safe.

More Complex

In the early 2000s, treatments for common chronic ailments
racked up impressive sales for the world’s biggest drugmakers. Blockbusters
like cholesterol drug Lipitor, which peaked at $12.9 billion in sales in 2006
for Pfizer, drove large gains in sales and profits. But after Lipitor’s
protection against generic competition lapsed in 2011, the geyser of cash it
once generated evaporated. By 2016, sales were $1.76 billion, down 86% from
their high.

“When Lipitor went off patent, the sales disappeared in a
nanosecond,” said Roger Longman, CEO of data-analytics company Real Endpoints,
which focuses on how to value drugs.

Lipitor and single-molecule drugs like it were
straightforward for generics makers to copy. Many of the drugs expected to lose
their patent shields in coming years, by contrast, are complex medicines
produced by living cells, which makes replicating them more difficult.

Drugmakers’ main lobbying groups, PhRMA and
BIO, successfully watered down efforts to give biosimilars an easier
approval process. They argued that making exact copies of biologic drugs would
be virtually impossible given the technical hurdles to duplicating the medicines’
large proteins, which are produced by genetically-engineered cells in
specialized vats.

PhRMA said it supported the law, which “balances the desire
for increased competition among biologics from biosimilar products with the
need for incentives to support future medical innovation,” said spokesman
Andrew Powaleny by email.

Patent Slope

Analysts say that given the longer approval arc for
biosimilars, major drugmakers are less likely to be whipsawed by generic rivals
when key medicines drop off patent. But over time, political pressure over high
drug costs is expected to undercut the dominance of branded biologic drugs. The
Food and Drug Administration’s new leader, Scott Gottlieb, has said he wants
more alternatives to brand-name medicines on the market to push down prices.

Also likely to shield drugmakers from a jarring sales slump
are patients already taking biologic drugs who will resist switching, according
to Ira Loss, a health-care analyst at research firm Washington Analysis LLC.

But new patients may be forced to take biosimilar versions
of drugs, and eventually that will turn the tide, he says. “Ultimately,
biosimilars are going to be a big part of our society they have to be for cost
reasons,” said Loss.

In the seven years since Congress passed the biosimilar
approval legislation, the US
has approved five biosimilars, short of the 25 such drugs now approved in Europe, where regulators have resisted the industry’s
lobbying muscle. The slow path to market in the US has frustrated makers of biosimilars
and patients who hope the presence of more competitors will cause drug prices
to decline.

“While Europe was acting,
we were talking,” said Chip Davis, chief executive officer of the Association
for Accessible Medicines, the generic drugmaker industry body. “We think
there’s an enormous amount of work to be done to get the pathway and market up
and running. Year over year we are falling farther behind Europe,
not catching up.”